The energy switching market has changed – what to watch out for

Energy switching has been making a comeback over the last few months, but the switching landscape looks very different now, compared to the start of the energy crisis. Gary Caffell, Editor-in-Chief at Look After My Bills, explains what you need to be aware of.

Doing an energy comparison to find a cheaper deal used to be simple. It is not that straightforward right now. Most households are still on standard tariffs with the price dictated by the Ofgem price cap. But the appetite to switch is returning.

Data from ElectraLink shows there has been a surge in switching in recent months, reaching the highest monthly totals since late 2021 when the energy crisis began. 

But if you are asking yourself, ‘Should I fix?’ and are looking at the cheapest fixed deals, there are three key things you now need to know. 

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1. The cheapest deals aren’t always on comparison sites right now

Previously, all suppliers put their cheapest fixed deals on comparison sites, such as our sister site, Go.Compare. This made finding the cheapest deal really easy, with full visibility of the whole market.

However, right now, suppliers are not sharing all of their tariffs with comparisons sites. This is because they are returning to the market cautiously, and are pulling tariffs frequently, concerned with volatile wholesale prices. They are not looking to take on huge numbers of new customers like they did in the past, and some tariffs are restricted to existing customers only.

Energy firms are directly contacting customers offering them fixed tariffs. But with no central database for people to compare all deals, households could be tempted into switching without knowing if it is the right decision. 

It has been left to sites, such as us at Look After My Bills, to collate details of these tariffs journalistically – something we do in our ‘Energy comparison: find the best gas and electricity deals for you’ guide. We have a regularly updated list of the fixed deals currently available, with the aim of giving you as full a picture as possible when it comes to knowing what deals are out there and how they stack up. 

To highlight the issue, my friend’s elderly mother even called the other day to question if she should accept a fixed offer from her supplier, as the tariff wasn’t on a comparison site and she had no way of knowing if it was a good deal. I have a real concern that many are signing up to fixed deals with hefty exit fees, without fully understanding what they are signing up for. 

Which brings me to the next problem…

2. The issue with savings figures and estimated annual costs…

Most of us are on the energy price cap, which changes four times a year. When looking at a new fixed tariff with an energy supplier, you’ll be quoted an annual saving, or an estimated annual cost of what you’d pay on your current standard tariff and the new fixed tariff to help you compare. However, that doesn’t tell the full story.

It will assume the current price cap rate stays the same for the next year and calculates your annual cost or savings based on the current cap. However, the volatility of the wholesale market means the price cap level can swing significantly every three months.

So, a fixed deal that looks favourable against today’s price cap rates could prove costly if the price cap level drops over the next year. Alternatively, you may think a switch to a fix isn’t worth it based on the annual estimate of what you pay now at the current cap level. But if the price cap was to rise, in hindsight you may wish you’d switched.

You need to see the annual savings figures or estimated current costs as a guide only, and don’t be persuaded to switch if isn’t right. Looking at the unit rates will give you a better picture.

We’ve launched our ‘What will I pay in 2024’ price cap calculator to help

At Look After My Bills, we’ve been working on a solution to help households understand what is likely to happen to bills over the next year if you don’t switch off the price cap to make comparing deals easier.

Try our Energy Price Cap calculator 

If you’re on a standard tariff (most are), tell us how much you currently pay and we’ll give you an estimate of what you’ll pay over the next year under the Ofgem price cap. This includes the confirmed new January-March price cap and the latest price cap predictions from analysts at Cornwall Insight for the rest of 2024

3. Switching is not without risk

Working out if switching was worth it before the crisis hit was simple. If you were on a standard tariff under the price cap, you’d typically be paying £100s a year more than the cheapest fix deals on the market.

So the message was simple then: get off the price cap, you are being ripped off.

That changed two years ago as wholesale prices rocketed and firms pulled their fixed deals. This meant the price cap was now pretty much the only option, with most households paying the same rates, regardless of their supplier.

This level used to change twice a year and didn’t fluctuate by too much. Last year, in a bid to ensure there was no longer a huge lag between changes in the wholesale market being reflected in the next price cap, the frequency of price cap changes increased to every three months.

With standard prices changing so regularly, it means switching isn’t without risk. With £150 dual-fuel exit fees common, you could end up overpaying on a fix if the price cap drops or cheaper tariffs become available. 

You need to know what’s expected to happen to energy bills over the next year

To work out if a fixed deal is worth switching to, you need to understand…

1. Most households are currently on the price cap. Essentially, everyone not on a fix, or special time-of-use tariff.

2. The price cap is rising by 5% in January. This means if you’re on a standard tariff (so not a fix) your energy bills will be going up by 5% in the New Year.

3. The cap is expected to fluctuate, but remain high over the next year. Analysts at Cornwall Insight are expecting the cap to swing a bit in the next year, but still remain well above pre-energy crisis levels. Our ‘Will energy prices fall in 2024?’ article covers in detail what’s expected to happen. 

Here are the latest Cornwall Insight predictions: 

Time period Price cap on Ofgem typical use figures
Current cap: 1 October 2023 to 31 December 2023 £1,834 a year
Confirmed new cap: 1 January 2024 to 31 March 2024 UP 5% - £1,928 a year
1 April 2024 to 30 June 2024 DOWN 6% - £1,816 a year - PREDICTION
1 July 2024 to 30 September 2024 DOWN 1% - £1,793 a year - PREDICTION
1 October 2024 to 31 December 2024 UP 2% - £1,834 a year - PREDICTION

Note, based on Ofgem’s new typical use figures of 2,700 kWh for electricity and 11,500kWh for gas. 

So, should I switch my energy to a fixed deal?

This is the million-dollar question we get asked more than any other (and I am asked by friends, strangers at social events and fellow parents in the school playground at pick-up time). We try our best to answer that in our ‘Should you fix?’ article and in our ‘How to find the cheapest gas and electricity energy comparison’ guide.

If I had a crystal ball, it’d be easy. Without one, our best guess based on the predictions as they are today, is…..

If you see a fixed deal for around or a little more than the current October-December price cap, it might be worth considering.

Particularly if you are pretty risk averse and just want the peace of mind to know your rates are locked in for a year, no matter what happens to global energy markets. 

Of course, there are no guarantees. And the risk of switching is if the price cap drops unexpectedly, or other suppliers offer cheaper tariffs, you may be locked into a pricier fixed tariff, with hefty exit fees if you try to leave early.

So there is no one-size-fits-all answer. It is very much an individual choice and all comes down to your attitude to risk.

Now, if only Santa could deliver crystal balls this year…